Overview of Maryland State Tax Payment Plans
The State of Maryland, like the Internal Revenue Service (IRS), can be aggressive in its efforts to collect back taxes. The Comptroller of Maryland is the entity that is responsible for collecting state taxes. If you did not pay your MD taxes in full or did not file a Maryland tax return (and you should have), you may receive a notice from the Comptroller’s Office. Many taxpayers make the mistake of ignoring the initial letter from the Comptroller. As a result, the balance can grow exponentially due to penalties and interest. Also, the Comptroller’s collection efforts will likely become far more aggressive. Many taxpayers are unaware that there are options available to them to both avoid, or cease, the collection process and repay their past-due taxes. One of those options is a Maryland tax payment plan.
What is a payment plan? What term does the state use?
A taxpayer that owes past-due state taxes in Maryland can set up an Individual Payment Agreement with the Comptroller’s Office. Much like an IRS Installment Agreement, an Individual Payment Agreement allows a taxpayer to pay their tax liabilities off over time. You will receive a notice from the Comptroller’s Office informing you of the balance owed in back taxes. Once you receive a notice from the Comptroller, below are some options you have:
- Do Nothing
- Pay the tax balance in full
- File an Appeal
- Set up an Individual Payment Agreement
- Apply for an offer in compromise (if eligible)
- You can find other options here
Doing nothing is easily the worst option. Not only will you face the possibility of significant collection proceedings, such as a garnishment or bank levy, but you will incur interest and penalties. The Comptroller can charge you double-digit interest per year and up to 25% in tax penalties. Over time the past due balance can grow substantially, making it far more difficult for taxpayers to get caught up.
Paying in Full
Paying the past due balance in full is a great option. Not only will you avoid collection proceedings and penalties, but you can quickly put the matter behind you. However, paying past-due taxes in full is often not a realistic possibility for most taxpayers.
File an Appeal
Like the IRS, the Comptroller grants taxpayers the right to appeal tax assessments. Taxpayers must file an appeal within 30 days of receiving the initial notice from the Comptroller. The Comptroller will hold an informal hearing to consider your appeal. If the Comptroller rules against you, you have the right to appeal the matter to the Maryland Tax Court. Appeals are useful if you believe the assessed amount is incorrect. They also have the added benefit of buying additional time since the Comptroller will not take collection action while an appeal is pending.
Set Up a Payment Plan
Setting up an Individual Payment Agreement is often the most feasible and best option for taxpayers. The durations of payment plans vary depending on both the taxpayer’s financial situation and the stage of the collection proceedings.
Consider an Offer in Compromise (OIC)
Not everyone qualifies for an Offer in Compromise. A taxpayer may consider an Offer In Compromise if he or she doubts the tax liability is correct. Many taxpayers file for an OIC because they don’t believe they can pay off their tax liabilities or if paying it would create an economic hardship. Taxpayers who cannot pay MD state in full should work with a licensed and experienced tax professional. You can read more about an MD offer in compromise by visiting the link above.
Common durations for an MD tax payment plan?
While the Comptroller’s Office is readily amendable to short-term repayment plans, more extended duration plans can be more challenging. Payment plans range from 2 to 99 months. Typically, the Comptroller’s Office will consider your ability to pay before agreeing to a long-term repayment plan. Individual taxpayers may be required to complete and submit a Collection Information Statement (MD 433-A) to the Comptroller’s Office. Businesses would use Form MD 433-B. Both forms require a detailed list of the taxpayer’s assets and income. While there are no set durations for repayment plans publicly stated, the following are some guidelines:
- No Existing Lien and Form 433-A – Up to 36 Months
- Existing Lien and No Form 433-A – Up to 60 Months
- Form 433-A Submitted Documenting Financial Hardship – up to 99 Months (Note: Requires Manager Approval)
In some cases, Maryland may require a down payment before granting a payment plan. In many cases, individuals have had the down payment requirement waived. However, businesses have a tougher time getting this policy waived.
For more information on durations of tax payment plans consult with an experienced tax professional.
Can a Payment Plan Help You Get Drivers License Renewal?
One of the primary motivations for taxpayers to get caught up on back taxes is an inability to renew a Maryland driver’s license or vehicle registration. State law requires that both individual taxpayers and businesses that have outstanding taxes or unemployment insurance contributions satisfy those liabilites before Motor Vehicle Administration (MVA) renewal.
A payment plan can be an indispensable tool to renew your driver’s license and registration. If your driver’s license currently has an MVA hold, you can get it released by setting up an Individual Payment Agreement. Generally, to remove an MVA hold, a taxpayer is expected to make a down payment between 10% and 50% of the outstanding taxes. The taxpayer is required to make the payment in person and will be given a receipt to provide to MVA to obtain a release. A down payment of less than 10% may be possible for those taxpayers than enter into a 99-month repayment plan. Like the 99-month payment plan, the reduced down payment also requires manager approval.
For those taxpayers that get a second, or even third, MVA hold, the required down payment usually increases substantially. With a second MVA hold, the minimum down payment to obtain a release is 25%. For the third MVA hold, the minimum down payment amount increases to 50%. Again, many of these numbers are based on experience and may change. When in doubt, consult with a tax professional.
Negative consequences that can ensue from obtaining a Maryland tax payment plan?
Tax repayment plans can be an essential tool to help taxpayers resolve back taxes. However, it is critical to note that merely entering into a tax payment plan does not prevent the Comptroller from taking further collection action. For payment plans under six months, the Comptroller will typically not file a lien against the taxpayer’s property. However, for longer-term tax payment plans, the Comptroller could file a tax lien. A tax lien can attach to all of the taxpayer’s assets, as well as property acquired in the future. The Comptroller will file a notice of tax lien with the clerk of the circuit court in the county where the taxpayer resides.
A tax lien can make disposing or selling of property difficult. Also, the tax lien is a public record and may limit the taxpayer’s ability to obtain credit. Moreover, interest can continue to accrue during the life of the repayment plan, although at a significantly reduced rate.
Various ways someone can apply for a Maryland tax payment plan?
Typically, the Comptroller will send you a notice informing you that you owe back taxes. The notice will provide instructions to set up an Individual Payment Agreement. The easiest way to set up a payment plan is to visit the Comptroller’s website. Taxpayers can set up payment agreements online. You will need the notice number from one of the notices that you received from the Comptroller’s Office. Without this number, you will be unable to complete the process online.
As mentioned above, to qualify for a longer-term repayment plan, you may be required to complete a Collection Information Statement. Once the state of Maryland accepts a payment plan, the taxpayer can make payments by a personal check, money order, or credit card. Taxpayers can also set up a recurring payment plan which will deduct a predetermined amount from your bank account on the same day each month. Recurring payment plans are a good option since missing payments can result in a default and cancelation of your payment plan.
What factors could lead to a payment plan being defaulted automatically or denied by the state?
If you enter into a repayment plan and miss any scheduled payment, it could result in the cancellation of your repayment plan. Once canceled, the outstanding balance will begin incurring substantial interest and penalties. The Comptroller’s Office will likely resume collection efforts.
The denial of your repayment plan could happen if the Comptroller determines that you have sufficient assets or disposable income to satisfy your taxes. Obtaining a Maryland Tax Payment Plan can be confusing for those unfamiliar with the process.
Best practices for contacting the comptroller?
If you call the Comptroller to set up a payment plan or for another reason, be polite. Moreover, ensure you take note of the name of the representative you speak with on the phone. For help with a tax payment plan or to understand your best tax options, request reach out to a licensed tax professional with experience in resolving Maryland state tax issues. A tax firm or licensed tax professional can help you navigate to your best tax resolution. Or you can start your search below.